Smithfield CEO: Higher Food Prices Are Here to Stay

Here’s a
zinger of a news story that most commentators haven’t bothered to take note of…

The CEO of
Smithfield Farms, the largest pork producer in the US. Among other things he
said:

"Maybe to someone in the upper
incomes it doesn't matter what the price of a pound of bacon is, or what the
price of a ham, or the price of a pound of pork chops is," he says.
"But for many of the customers we sell to, it really does matter." Workers can share cars when the price of
oil rises, he quips, but "you can't share your food."

Mr. Pope also worries about the impact
on farmers, who are leveraging up operations to afford the ever-rising price of
land and fertilizer that has resulted from the increased corn demand. "There are record prices for livestock
but farmers are exiting the business!" he exclaims. "Why? Farmers
know they won't make money."

Weather is a factor, too. "We've
had the luxury for the last three years of extremely good corn crops, with high
yields and good growing conditions. We
are just one bad weather event away from potentially $10 corn, which once again
is another 50% increase in the input cost to our live production."

…Not all companies will survive this
economic whirlwind. Mr. Pope recalls
what happened the last time there was a surge in corn prices, in 2008:
"The largest chicken processor in the United States, Pilgrim's Pride,
filed for bankruptcy." They "couldn't raise prices, so their cost
of production went up dramatically." Could it happen again? "It darn
well could!" Mr. Pope exclaims.

…Mr.
Pope says the "losers" here "are the consumer, who's going to
have to pay more for the product, and the livestock farmer who's going to have
to buy high-priced grain that he can't afford because he's stretching his own
lines of credit. The hog farmer . . . is in jeopardy of simply going out of
business 'cause he doesn't have the cash liquidity to even pay for the corn to
pay for the input to raise the hog. It's
a dynamic that we can't sustain."

So here’s a
CEO, someone with actual business experience (not some moron academic who’s
never run a business a day in his life) telling us the following:

In other
words, we are rapidly heading into a food crisis. Food prices are NOT going to
be coming down. And we’re going to be seeing food shortages in the US in the
coming months.

So if you
are not already preparing for mega-inflation, you need to get moving now.
Because time is running out.

So if you’ve
yet to take steps to prepare your portfolio for the coming inflationary
disaster, our FREE Special Report, The
Inflationary Disaster explains not only why inflation is here now, why the
Fed is powerless to stop it, and three investments that absolutely EXPLODE as a
result of this.

All in all
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Comment viewing options

This article was a great example of how we got into this fucking mess in the first place. I think there is a consensus here at ZH that the American standard of living is in for a big shock downward. Like all less affluent peoples, the diet of the average American is going to have to shift from meat to grain.

Many producers of meat here absolutely need to go out of business. That would be a far better result on a macro basis than letting them live on as zombies, losing money and dissipating capital. The market is supposed to work that way, and the capital can be reallocated to the production of grain.

But, instead, the meat industry will lobby Washington and their state capitols for legislative relief, and they will get it.

The grain producers will also seek help from the government to remove some of the risk inherent in the expansion of their businesses. They, too, will get it.

The US government is now structured to have as its primary directive the preservation of the status quo at any cost.

haha. the world of finance never fails to amuse. food prices are going to skyrocket, and all these assholes can think about is diversifying one's portfolio. how about using the money you have now to grow lots of food so you're poor neighbors don't kill the shit out of you when they're desparate and starving?

It's interesting to see how long people try hold on to dying paradigms. Very little about the future will look like the past 100 years. the least of your concerns will be your fucking portfolio. I can't wait until Smithfield drowns under the weight of its own bloated, over-centralized pig shit. Even more, I can't wait for Monsanto to meet the same fate.

Are you being sarcastic?-- I hope???!! For every barrel of ethanol produced, THREE barrels of oil are consumed-- for pesticide, for tractors, for trucking, for cooking the corn mash, etc. Ethanol fuels are destroying our energy economy. Ethanol also ruins gasoline engine fuel economy, and collects water in fuel systems. Learn the facts.

It is incorrect to think that ethanol production from corn is a causative factor for the recent increase of food costs.

When ethanol is produced from corn 17% of the corn is consumed and 83% of the corn used for ethanol production is converted to brewers mash. Brewers mash is a high protein product which is used to feed animals.

I refer you to a National Public Radio segment (http://www.npr.org/templates/ story/story.php?storyId=89598524). In the NPR story cattle ranchers are quoted as saying that the increased ethanol production has resulted in a large increase in the availability of brewers mash at reduced prices. The reduction in the price of the brewers mash used for animal feed has resulted in a $40 to $50 per animal reduction in the costs of raising livestock. A cattle rancher quoted in the NPR segment commented that ethanol production has resulted in him saving $200,000 per year to raise his herd due to the wide availability of brewers mash at very reasonable prices.

When a whiskey distillery buys 100 pounds of grain to make alcohol it produces 83 pounds of mash. It is normally able to sell the mash for more than it paid for the grain on a per pound basis because the mash has much more food value.

The conversion from corn to ethanol is the worst thermodynamic cycle there is. It is 8 times worse than for sugar cane to ethanol for : land usage yield/acre, EROI (primary energy net balance) etc. This is proven fact. Also studies show that rather than use ethanol as car fuel it is better to use it as fuel to make electricity and convert that to car electric cell energy. The overall efficiency is better. Proven fact. The only problem here is the storage problem of electric energy. We'll get there via hydride technology.

Your $40-$50 savings are fictional. Animals on feedlots require antibiotics and other topical treatments to keep them healthy in their crowded, filthy environment. These meds cost quite a bit of money and require labor to manage and apply them. Then there's that wonderful discovery by the owners of these feedlots: the piles of bulldozed dung contain lots of undigested "nutritional value"... Of course a reputable company like Smithfield or McDonald's would never mix 10% of cow shit into their animal feed, would they?

Just bought bacon that seemed to be nothing but fat. Clearly they are also packagin up very cheap cuts and trying to pass them off besides downsizing the maount in the same size packages. Of course, this would have nothing to do with importing one-hundred million immigrants in the last forty years would it? Ruining our water supplies to keep up with the pooh and trash of these people added, unnaturally, to our population. They "pundits" try to say that the population is not growing and that this was the justification, but the actual process of any people is ebbs and flows; a period of an age group that reaches reproduction capability and does so, followed by that same group raising the children, repeat. There is no natural straight trajectory on population. And since China and Africa and India have fouled their countries with overpopulation, the stupidest, absolute stupidest action is to take their overpopulation as ours. That is a loser's game in so many ways. It is tantamount to eating your seed corn up to the last kernel and saying, "Oh really, I'm supposed to husbandry natural resources for future generations instead of giving them away to third world people's who care nothing for my children's future." Sometimes Americans really are too stupid to deserve this country.

Claiming that farmers are going to quit farming is the same thing as saying capitalism is dead. Is that the case? Has Zimbabwe Ben killed capitalism? Obama and Frank seemingly have killed capitalism in mortgage markets, by making it impossible to gauge risk. Of course, the banksters brought it on themselves by electing not to gauge risk entirely on their own well before President Obama was elected or before mortgage modifications were invented.

The way I see it, the US has lost some of its enlightenment and devolved back into the sort of nonsensical, patronage-laden corrupt business environment which has existed for most of history. It comes in waves, there will be reforms in the right direction eventually. And in the mean time, life ain't fair.

The system is now in danger of implosion, not just deflation. The corruption and concentration of power is so deep that it is incompatible with democratic institutions. If the people do not act fast it could mean that the USA will not only be in economic decline but also in political decline. And that is a killer. Taking back power from an oligarchy is not easy. Ask the Greeks...

You've got that backward. The banks are running the government. This is another corporate fascist whining for his bailout. Big Ag hasn't been a real business since at least the 70s (one could argue for 1948). They've been TBTF and sucking the Ag Dept's tit ever since.

Pope's primary complaints were that 40% of the corn crop is being diverted to ethanol, and that imports of ethanol are effectively banned. This has little to do with markets and everything to do with incompetent government.

There are also plenty of ways of raising hogs that don't involve factory farming, and are much less sensitive to grain prices. Try makin' your own bacon. It's not rocket science.

The news from the corn belt is disturbing. It's been a cold rainy spring. Only a fraction of normal corn has been planted, and every week is a drop of many bushels/acre in yield. Corn doesn't grow well in 40 degree weather.

So you are saying that the changes in food prices will have no impact on those few of us left who still eat? Maybe Wal-Mart (who says their customers are running out of money) and Pilgram's Pride should just suck it up and ignore the bottom line.

I know my family would be just fine with more expensive food, I've been saying for years that it'd be fun to live on cat food and tap water.

Before I even got finished page 1, I'd be running out the front door to watch the grass grow on my front lawn. Or to the garage to watch the paint dry on some Lakewood traction bars I got for my Lightning.